Think Like the Great Investors: Make Better Decisions and Raise Your Investing to a New Level

Chapter 3

I am absolutely certain (overconfidence, confirmation and availability)

A frequently overlooked aspect of investment is how we make decisions. Our decision making can carry with it important unconscious biases. Typically, this area of decision making is the final step in the investor’s development from beginner to good investor. Earlier stages are analysis, money/risk management and the development of an investment plan.

Good decision making features two key elements. The first element is fact finding. Most investment decisions will be more soundly based if we have uncovered all of the easily readily available facts. The internet has made this a great deal easier than it was twenty or thirty years ago. We can discover information more quickly and search many more possible sources. Increasingly we should be able to avoid the sick feeling in the pit of our stomach when an investment fails because there was something that was readily available, but that we did not take the time to find out about. However, the flood of information on the internet has two downsides:

• Doing the research takes time, which none of us has in abundance.

• Some information on the internet is of dubious quality or mere opinion. We must be ever more able to assess the value of what we read there.

The second element is having an appropriate level of confidence, or being well grounded in the limits ...